Monday 22 January 2018

Asian shares hit two-month high after solid US job growth

Markets from Tokyo (above) to Europe have been hammered amid global concerns over the state of the Chinese economy. Photo: Bloomberg
Markets from Tokyo (above) to Europe have been hammered amid global concerns over the state of the Chinese economy. Photo: Bloomberg

Asian shares hit two-month highs on Monday, extending sharp gains from last week, following upbeat US jobs data, a rebound in oil and commodity prices and a flurry of reassurances from Chinese leaders that the economy would remain on sound footing.

European shares are expected to slip after last week's gains, however, with spread-betters looking to a fall of up to 0.5pc in Britain's FTSE, 0.4pc in Germany's DAX and 0.2pc in France's CAC 40.

MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS rose 0.4pc. It has recouped about 80pc of its losses since the start of 2016.

"With a strong rebound in commodities, the mood is shifting, and will likely stretch the rebound - till the reality of falling growth sets back in," wrote Hong Hao, managing director of research at BOCOM International in Hong Kong.

Japan's Nikkei slipped 0.6pc, with traders taking profits on concerns about a firmer yen and ahead of revised fourth-quarter GDP on Tuesday that is expected to show the economy contracted slightly more than initially estimated.

Chinese markets edged up slightly after Prime Minister Li Keqiang on Saturday spelled out a new five-year economic plan, which included an average economic growth target of 6.5 to 7pc and a moderate increase in the fiscal deficit to 3pc of GDP this year.

"Chinese investors weren't expecting big fiscal stimulus at all so there's no disappointment there. Talk of fiscal stimulus mainly came from foreigner investors," said Naoki Tashiro, president of TS China Research.

The Shanghai Composite index rose 0.3pc and an index of China's start-up market rose 2.1pc. Tashiro noted that Prime Minister Li's speech did not touch on liberalizing rules on initial public offerings.

U.S. nonfarm payrolls grew by 242,000 jobs last month, beating forecasts for 190,000, while the participation rate rose for three months in a row.

The upbeat figures, coming after data last week showing some signs of recovery in the US manufacturing sector, eased worries that the US economy could be slipping into recession under the weight of low oil prices and a stronger dollar.

"The US job data helped to push back excessive pessimism on the US economy. A brightening US economic outlook is underpinning various risk assets," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

On the other hand, average US hourly wages unexpectedly dipped by 0.1pc after a surprisingly strong 0.5pc increase in January. That suggested the Federal Reserve can afford to wait longer before raising interest rates again.

As a result, US interest rate futures are now pricing in only one rate hike by the end of this year, with virtually no chance seen of a March hike.

The US 10-year bond yield rose to a one-month high of 1.902pc on Friday but remained way below its levels of around 2.25pc in December when the Fed raised rates for the first time in almost a decade.

That limited the dollar's attraction against other currencies. The dollar's index against a basket of six major currencies .DXY =USD dipped to near two-week low of 97.019 on Friday and last stood at 97.323.

The euro rose to one-week high of $1.1043 on Friday and last stood at $1.0992.

The common currency has been pressured by anticipation that the European Central Bank will expand its stimulus at a policy meeting on Thursday.

The yen was little changed at 113.67 to the dollar.

The commodity-linked Australian dollar shot up to a 5 1/2-month high of $0.7444 on Friday and last stood at $0.7412.

"AUD/USD eased modestly in early thin Asian trading following the weekend commencement of China's National People's Congress (NPC). There have been no major positive surprises from the NPC so far," Commonwealth Bank currency strategist Joseph Capurso wrote in a note to clients, referring to China's 12-day annual national parliament.

Premier Li said on Saturday "we must be prepared for a tough battle" to keep the economy growing, while pushing hard to create more jobs and restructure inefficient industries.

Beijing's draft goal of running a fiscal deficit equivalent to 3pc of GDP was a rise from the previous year's target of 2.3pc. But some investors had hoped for higher deficit spending, estimating the actual figure in 2015 may have been around 3.5pc.

Elsewhere, oil prices hit near-three-month highs, extending their gains of about 10pc last week as traders close short positions.

Benchmark Brent crude futures LCOc1 rose to as high as $39.50 per barrel, their highest since mid-December.

That is almost one-third above its 12-year low hit in February.

"It looks at this stage as if it (oil) has formed a little bit of a bottom and perhaps we're going to see a sustained price in the $30s, maybe trending back up to $40 dollars at some point," said Ben Le Brun, market analyst at OptionsXpress.

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